Modi’s Performance and the Tragedy of India’s Poor

If Indian Prime Minister Narendra Modi had wanted to organize an effective response to the COVID-19 crisis, there is no secret as to what he could have done. The problem is that the best policies would have been much more politically difficult than putting on a show of bravery and boldness.

BERKELEY – Indian Prime Minister Narendra Modi’s penchant for theatrics has had deadly consequences for India’s poor. That was certainly the case with his disastrous demonetization policy in 2016 and his government’s rushed implementation of a national Goods and Services Tax, which resulted in widespread harassment of small businesses.

But these flubs were merely the opening act. By imposing one of the world’s harshest COVID-19 lockdowns before preparing adequately or consulting with lower levels of government, Modi has inflicted unprecedented damage on India’s economy and on the poor, who live hand-to-mouth at the best of times. According to some estimates, more than 120 million people lost their jobs and incomes immediately after the lockdown was ordered on March 24. And about half of the country’s population of 1.38 billion is likely to have been impoverished, with many approaching starvation levels.

Shortly after the lockdown started, India’s finance minister, Nirmala Sitharaman, announced a relief package amounting to under 0.5% of GDP. The program consists primarily of extra food rations, and merely frontloads pre-existing small income grants for farmers, while offering a pittance in cash assistance for women with bank accounts tied to the government’s financial inclusion program, known as Pradhan Mantri Jan Dhan Yojana. And survey data suggest that only about half of India’s poor women have Jan Dhan bank accounts.

Then, after seven excruciating weeks, Modi announced with great fanfare on May 12 that his government would adopt a rescue package worth 10% of GDP. But while this sounds much better than what came before, a closer examination reveals that the amount of immediate relief for the poor remains minimal. That “10% of GDP” includes all the liquidity enhancements announced over the previous three months by the Reserve Bank of India. Worse, most of these funds remain unused, because commercial banks have been unwilling to lend them on to private-sector firms.

The banking sector’s stance is understandable. It has been obvious for years that India’s economy suffers from deficient demand, which is why it was in a prolonged slowdown before the pandemic arrived. Now that the lockdown is inflicting deep economic losses, an increase in bank lending would most likely do little more than add to the stock of bad loans.

To be sure, the latest rescue package includes a credit guarantee (not actual loans) for 4.5 million microenterprises and small and medium-size businesses (out of a total of 63.4 million across the country). It also includes working-capital assistance for farmers (though many do not have the Kisan credit cards required to receive it) and street vendors (though only for about half the ten million in urban India), and a budget increase for rural public works. But, again, while these measures could help to restart disrupted production and supply chains, they will not solve the staggering demand problem (except possibly from the rural works program).

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After weeks of callous disregard for the plight of tens of millions of migrant workers, the government has now announced two months of grain rations. These workers have been hungry and homeless since suddenly losing their jobs, and , with public transportation locked down, many had no choice but to walk hundreds of miles with luggage and children to their villages. Hundreds died on the way.

In general, the government’s response has largely excluded hundreds of millions of daily wage laborers and urban workers. A substantial increase in cash assistance to all these people – with or without bank accounts – would have gone a long way toward boosting aggregate demand. Likewise, the government could have done more to discourage major non-farm employers from shedding their workforce, such as by offering a significant wage subsidy for workers on their payrolls (as many other countries, both rich and poor, have done).

The Modi government has also ignored the pressing need for a large-scale transfer of central funds to near-bankrupt state governments that have been covering most of the spending on health care, agriculture, and social protections, and have little capacity to borrow at low cost. Instead, the government’s decision-making remains over-centralized, with little participation by local governments and communities, resulting in confusing and conflicting administrative rules .

In a country with a chronically underfunded health system, the immediate priority should have been to invest in a massive public-health program, particularly at the primary-care level. A government focusing on what really matters would have launched a decentralized program for testing, contact tracing, and quarantines, while providing special protections for vulnerable populations, such as those over the age of 65 (a mere 6% of the population). This would have allowed for a cautious early relaxation of the lockdown for the rest of the population, who could return to earning a living.

Weighed against the scale of the looming disaster, the government’s fiscal response has been pitiably small, still amounting to a mere 1% of GDP or so. Modi and his advisers are probably worried about the government’s perceived fiscal rectitude in the eyes of the credit-rating agencies (what some call “Modi’s fear of Moody’s”). But not even a high credit rating will stop – let alone reverse – the capital flight currently gripping India; a fiscal chastity belt at a time of economic collapse and widespread destitution is unlikely to help.

Of course, in the medium term, the bill for a larger rescue program must be paid. This would be painful – but not impossible – with the help of public borrowing, a drastic reduction in subsidies currently benefiting the better off, and a significant increase in taxation. Given that India, a country of extreme wealth inequality, taxes neither wealth nor inheritance, and under-taxes capital gains and real property, plenty of untapped revenue sources are available. A “corona levy” toward an overhaul of the country’s public-health system would also be timely. Needless to say, vested interests will vehemently oppose any new taxes. But there is no better time than a crisis to overcome such resistance.

The great political paradox of contemporary India is that despite all the hardships that Modi has visited upon the poor, he retains considerable popularity among them. A significant portion of the electorate seems to have bought into his fiery rhetoric of muscular Hindu nationalism. (And he certainly hasn’t been hurt by the opposition’s fecklessness.) Hardly anyone now remembers that in February and March – crucial weeks for pandemic preparation – Modi’s party was busy spewing hatred against minorities and dissenters, even as the virus was raging in a neighboring country.

It is hard to accept that Modi’s popularity will remain untarnished by the problems arising from his clumsy mismanagement of the COVID-19 crisis. But if the past is a reliable guide, his hammy bravery against the virus and other elusive enemies may continue to work for him politically, even as it leaves tens of millions of Indians worse off.

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There are really good points in this article which should have been considered as major issues with lockdown but with country with billions of people so far india is very successfully trying to contain the epidemic. Also country is making efforts on solutions for the issues or mistake of them. But if you look the whole picture in my opinion there ia no other party in india which would have contain the pandemic as much as modi government is doing. That's just my opinion. I don't mean anything else then this.

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There are really good points in this article which should have been considered as major issues with lockdown but with country with billions of people so far india is very successfully trying to contain the epidemic. Also country is making efforts on solutions for the issues or mistake of them. But if you look the whole picture in my opinion there ia no other party in india which would have contain the pandemic as much as modi government is doing. That's just my opinion. I don't mean anything else then this.

Some checking online showed that India has recorded fewer than 4K deaths so far. Not exactly a failure story for a nation of over 1 billion people. The truth is that Congress was (still is) the party of the cosmopolitan elite. These people can never forgive ordinary Indians for removing them from power.

Prof. Bardhan was close to the previous regime. Sadly, he has taken a consistently prejudiced and partisan line with respect to the present administration. This lowers the prestige of the Social Sciences. It also appears to be contributing to Congress's disastrous mishandling of this crisis. There is no point pretending that Modi is anti-poor and that he wastes his time with 'theatrics'. Voters can see for themselves that this is not the case. Even if Bardhan can convince one or two people in Berkeley, how does it help the Opposition in India? Foreigners don't know, but Indians do know, that Health is on the State list, not the Concurrent list, and so under the Indian Constitution, the Center has little direct role in an Emergency of this type. Kerala is an example of a State which, because it had previous experience of a similar problem, reacted quickly and minimized disruption. Tamil Nadu, because of its even higher per capita Medical infrastructure, too did quite well. Bengal appears to be doing badly- this may boost Modi's party there. Maharashtra, where Congress is an ally of the ruling party, is not doing well. U.P- much of which is very poor- appears to be doing better but that may change as migrants return home. Still, if it changes its Labor laws and continues to suppress anti-social activity with a heavy hand, some good may come out of bad.

Modi has burnished his reputation with the masses. Once again, he has shown that he is the only man who can take the tough decisions needed to secure the internal and external security of the country. Since Congress and its cronies do not have a good reputation when it comes to financial probity and concern for the poor, their theatrics have backfired. Prof. Bardhan's article too is backfiring. We expect more from highly credentialized Academics. Their cartoonish op-eds- in which they repeat the same old slurs which failed to stick a decade ago- lower the prestige of the Disciplines they profess and the Institutions they head up.

It is not the case that Indian policy makers are worried about 'Moody's'. There is plenty of money around and low oil prices as well as the prospect of supply chains being switched to India have changed the macro picture. It looks as though UP will spearhead changes in Labor laws. This means 'make in India' is becoming a reality.

Modi is not a superman. Indeed, his humility is the bedrock of his appeal. But he has shown willingness to take risks which the public consider worthwhile. I personally think he has been very lucky. His enemies within the country are so elitist that the arguments they present appear directed at Berkeley or Harvard, not Bareilly or Hyderabad. This creates an 'echo chamber' which causes Harvard and Cambridge trained Rahul Gandhi to do very silly things.

India is going to have a lower real exchange rate even if oil prices stay low because of the loss of remittances. 'Capital flight' is meaningless given that Investment depends on the type of global structural shift involving supply chains that this pandemic appears likely to cause.

Anybody who has the slightest of idea of whats going on in India would agree with the idea of cash assistance to boost demand but the problem lies in the execution, a population of 1.3 bn people significant numbers of whom have long abstained from opening a bank account, how would you make sure that the right beneficiary get the sum, additionally it would create panic amongst people who could not get the money reason being the lack of bank account.I completely disagree with you suggestion of without bank cash assistance, there is no way you could distribute the cash to the people who actually need it, for starter you cant get the intended sum of cash down to the person who actually needs it because empathy towards the sufferer is likely to be captivated by the greed and vested interest of the people in the chain and chances are it would never reach the person it was intended to, others among the issues are identification of the anguished, maintaining social distancing and many more.

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Mass protests over racial injustice, the COVID-19 pandemic, and a sharp economic downturn have plunged the United States into its deepest crisis in decades. Will the public embrace radical, systemic reforms, or will the specter of civil disorder provoke a conservative backlash?

For democratic countries like the United States, the COVID-19 crisis has opened up four possible political and socioeconomic trajectories. But only one path forward leads to a destination that most people would want to reach.

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